Behind the headlines -- the news of last month's gross national products, the endless debates about industrial policy and protective tariffs, the stories of the latest hostile takeover -- is a world of economic growth that is almost invisible. The businsspeople who inhabit this world don't make the papers, and they don't make waves on Wall Street. Their companies are mostly young, and are still privately held. It isn't exactly a world of small business -- not as the term is usually understood -- but it isn't big business, either. Nor is it simply a world of high technology. About all the companies have in common is that they are growing so fast they won't be invisible for long. They are temorrow's news.
Every year, INC. ranks the standouts of this world: the 500 fastest-growing private companies in America. If you think you must already know these companies, glance through the list. Maybe you recognize Herbalife International, the direct-sales company that is the list's top gainer, if only because of its notoriety (see "Unbridled Growth," page 100). And maybe you know another name or two. But the chances are good that you haven't heard of, say, SpeeDee Oil Change & Tune-Up (#84), founded in 1980 by Gary Copp in Kenner, La. SpeeDee, which advertises that it will change your oil in 9 minutes and tune your car's engine in 30, went from about $110,000 in sales five years ago to nearly $2.5 million last year, and increased its work force almost 10 times. That's growth. But outside of Kenner, it made no headlines.
As a group, the companies on the INC. 500 challenge the stereotypes about the origins of our economic growth. Look, for example, at the number of computer-related businesses on the list. The recent shakeout in the industry doesn't show up on a list that tracks five-year growth, and in fact, some 105 companies (21% of the total) are manufacturers or distributors of computer hardware, software, or systems. But that leaves nearly 400 companies that have little or nothing to do with computers; indeed, most of these 400 aren't high-technology enterprises of any sort. CTEC Inc. (#476) is a manufacturer of ski chair lifts. International Medical Centers Inc. (#40) is a health maintenance organization. Hinkle Metals & Supply Co. (#483) is a distributor of roofing and sheet metal. There are, on the list, 11 publishers, 17 consulting firms, 27 contractors and builders, and an operator of hair and tanning salons.
Service industries are supposed to be the fastest-growing sector of the U.S. economy, and the list supports this belief -- up to a point. More than 40% of the companies on this year's INC. 500 perform some kind of service, ranging from American Trans Air Inc. (#7), a 12-year-old airline based in Indianapolis, to Phoenix Advertising, Design, & Promotion Inc. (#500), which, despite its name, makes its home in Elm Grove, Wis. Another 25% of the companies, however, are in wholesale or retail distribution, and 26% are engaged in what is supposed to be yesterday's business, manufacturing. INC. 500 companies -- and these are companies, remember, that have grown at a minimum of 464% over five years -- manufacture floor-cleaning equipment, carbon paper, computer keyboards, hearing aids, waterbeds, fiberglass moldings, and magnetometers. Fayette Manufacturing Corp. (#5) makes windmills and other wind-energy equipment. Weathervane Window Co. (#201) makes wooden windows.
INC. 500 companies reside in 43 states and the District of Columbia. There are, as might be expected, plenty of companies from New England (33); from New York, New Jersey, and Pennsylvania (65); and from Texas (35). And yes, California is far and away the single-state leader, with 101 representatives. But consider the distribution of the remaining 266 companies. Seventy-four of them make their home in a pure Rustbelt region that includes Ohio, Michigan, Illinois, Indiana, and Wisconsin. Eighty-seven are in the southeastern coastal states, Virginia through Florida. The rest are pretty well scattered. Delaware, Kentucky, Louisiana, Nebraska, New Mexico, South Dakota, Utah, Vermont, and Wyoming registered one company each, and the only states that didn't make the list were Maine, Mississippi, Montana, Nevada, North Dakota, Oklahoma, and West Virginia. Alaska and Hawaii counted 3 companies apiece.
The most important measure of economic growth may be the creation of jobs. This is an area in which the U.S. economy, despite its sometimes sluggish performance, has outshone the rest of the world in recent years. American employers created some 24 million jobs from 1974 to 1984, outstripping not only Western European countries (which were actually losing jobs), but also Japan (which was generating them much more slowly).
Many of these jobs came from the growth of small, private companies like those on the INC. 500. Five years ago, the companies on this year's list employed a total of roughly 12,600 people. In 1984, they employed nearly 63,600, an overall increase of more than fivefold. The average company in this period added 100 new workers. To be sure, not all the jobs were new positions. Employment leader Pedus International Inc., for example (Pedus was last year's #1 company and ranks #101 this year), added 5,600 employees over five years, thanks in part to its five acquisitions. National Health Care Affiliates Inc. (#23) added 1,517 new employees, partly through its 14 acquisitions. But Hall Financial Group (#208) increased its work force from 835 to 2,150 with only a single acquisition (which accounted for only 19 workers); and Solectron Corp. (#144), an electronics manufacturer, went from 150 employees to more than 2,000 with no acquisitions at all. Overall, four out of five companies on the list grew without acquiring any other company.
Job creation and productivity are often opposite sides of the same coin. Capital equipment that allows a company to maintain output while cutting its work force may lead to a loss of jobs even while it boosts productivity. Critics charge, moreover, that America's job-generation record has merely reflected the replacement of high-productivity, high-wage jobs by low-productivity, low-wage jobs.
Where the 500 are concerned, however, the startling growth in employment has been accompanied by an equally dramatic increase in labor productivity. Average sales per employee rose from $78,825 in 1980 to $185,850 in 1984, a gain of significantly more than 100%. Median sales per employee -- the point on the list at which half the companies had more, half had less -- were about $106,000 in 1984 as compared with about $47,000 in 1980, also a better-than-double jump. The productivity leader for 1984 is Corinthian Communications Inc. (#432), a media buyer for advertisers and ad agencies, with $78 million in sales for its 18 employees. The 10 other companies with labor productivity of more than a million dollars run the gamut from All American Hero Inc. (#15), a fast-food franchisor, to David Langer & Co. (#195), a wholesale distributor of semiconductors. At the low end, with sales per employee of less than $10,000 (and thus, one suspects, a lot of part-time employees), are Pedus International, which provides commercial cleaning and security services, and Booth Organization Inc. (#338), another building-maintenance company.
For all that the INC. 500 may tell us about growth, it's also a list that can be interesting on its own terms -- particularly to the entrepreneur or chief executive officer who would like someday to see his or her company on the list. Want to compare your company's characteristics with those of this year's winners? Here are some of the key variables.
Sales: To be eligible for inclusion, companies on the list must have recorded at least $100,000 and no more than $25 million in sales in 1980, the base year for the listing. And they obviously have to have grown fast since then. Given those constraints, the size of the companies on the list spans a wide range. The sales leader, Le Beacon Presse (#35), did two thirds of a billion dollars in business last year, up from $158 million in 1983 and $15.7 million in 1980. Another five companies -- which, interestingly, have nothing else in common -- did more than $100 million each, putting them firmly in the ranks of America's medium-size businesses. At the other end of the spectrum, 16 companies registered less than $1 million in sales. The smallest of all: Alarmtronics Security Systems Inc. (#449), a 13-employee company founded in 1979, with sales of $622,000. Overall, the median size of an INC. 500 company in 1984 was about $6.2 million in sales.
Employment: Ranked by number of employees, the INC. 500 range all the way from Pedus International, with 7,000 workers, down through Lawrenceville Press (#294), Help-U-Sell (#340), and Underwriters Financial of Florida (#480), each with 3 employees, and finally to tiny Central Petroleum Transport (#445), a common-carrier trucker that managed to do nearly $1 million in business last year with only 2 full-time employees. How does Central Petroleum do it? CEO Larry Crabb and his associate Milton Abraham contract out anything they can't handle themselves, including the office work and dispatching. "We're totally owner-operated to prevent strikes," says Crabb with a smile. "There haven't been any strikes so far, so I guess it works."
The median company on this year's list had 57 employees.
Age of company: Since a place on the INC. 500 requires a five-year sales history, no company on the list could have been founded more recently than 1980. Given that limitation, most are relatively young; 83 were founded in 1980, and the median founding date is 1978. But a surprising number aren't such spring chickens: 34 companies were founded before 1970, and 11 of these date back to before 1960. The oldest company on the list, like last year, is N. Chasen & Son Inc. (#435; see page 69). Four others have been in business since the 1940s. R.L. Drake Co. (#380) goes back to 1942; it began building military equipment, then after the war it got into amateur radio and marine communications; now it manufactures satellite communications equipment. Executone Telecommunications Inc. (Pa.), rated #258, was just Executone of Reading Inc. when it was founded in 1945. Starting out by servicing hospital and business intercoms, it now sells and services telephone, hospital, and paging equipment. Paulsel Lumber Co. (#174), which also started business in 1945, and TravelCenter Inc. (#369), which was founded a year later, have only recently embarked on a fast-growth trajectory. Why did they wait so long? For Paulsel, the turning point was when the company focused all of its attention on its wholesale operation; for Travel-Center, it was a series of maneuvers allowing the agency to take full advantage of airline deregulation.
Role of the CEO: All but 63 of the companies on this year's list were founded by their current CEOs. He or she -- there are 23 women CEOs on the list -- holds 100% of the equity in 156 of the companies and more than 50% in 135 others. Surprisingly, though, there are 14 companies in which the head man or women holds no equity at all. The reasons vary, but in many cases it's because the CEO is relatively new to the company, and the founder hasn't yet ceded any stock. In other instances, the founder has remained as CEO but has passed on the stock to other family members.
If you want to be the head of an INC. 500 company, it may help to have a famous name, even one that's spelled differently from your namesake's. The head of Argosy Electronics Inc. (#401) is named Ronald Regan. The CEO of Local Data Inc. (#442) is named Robert E. Lee.
Profitability: INC. doesn't request exact profitability figures from companies on the list. We do, however, ask for categories of profitability (1%-5%, 6%-10%, and so on). Despite the companies' fast growth, there is money being made. Forty-five companies on the list -- close to 10% of the total -- registered aftertax income of 16% or more of sales for 1984. (More than half of these companies reported profits in the same category for 1980.) Thirty-seven companies fell into the 11%-15% category, and 124 earned from 6% to 10% of sales. Far and away the biggest single category was profits from 1% to 5% of sales, while 43 companies reported break-even or losing operations. Ninety-four of the 110 companies that reported losses in 1980 were profitable in 1984; only 14 went in the other direction.
Growth: The typical INC. 500 company on this year's list registered a 900% growth rate in sales over the five-year period, or a compound annual growth rate of 78%. The leader, Herbalife International, went from $386,000 in 1980 sales to an astonishing $423 million in 1984, growing by a factor of more than a thousand. Nine other companies multiplied their sales more than a hundredfold. Even to make the list, a company had to rack up a 464% five-year growth rate, or 54% a year compounded. To put these numbers in perspective: If you doubled your company's sales every year, you would register a 1,500% growth rate over five years. One hundred twenty-four companies on the list did better than that.
How long can a company continue to grow at such a rate? To judge from past years, a fair number of companies will somehow maintain that pace and turn up on next year's listing (see "Sonic Air's Boom Goes Bust," page 110). A few will stay on the list for three or even four years. Others will sell out, go public, or go broke. Most, whether they are eligible for future 500 lists or not, will keep on growing.
The only thing they can't expect to do is keep on growing and remain invisible.
THE INC. 500 AT A GLANCE
NO. OF COMPANIES BY INDUSTRY
TOTAL SALES IN 1984 ($ MIL.) $7,376.5
TOTAL SALES IN 1980 ($ MIL.) $521.3
Percent Change (1980-84) 1,315%
AVG. SALES IN 1984 ($ MIL.) $14.8
AVG. SALES IN 1980 ($ MIL.) $1.0
AVG. SALES PER EMPLOYEE, 1984 $185,850
AVG. SALES PER EMPLOYEE, 1980 $78,825
Percent Change (1980-84) 136%
NO. OPERATING AT A PROFIT *
16% or more 45
* Over the past five years, 169 have seen earnings grow, 124 have seen their earnings drop, and 207 have stayed the same.
TOTAL NO. OF EMPLOYEES
Percent increase 405%
AVERAGE NO. OF EMPLOYEES
Before 1960 11
FOUNDER IS CEO 437
NO. ACQUIRING OTHER COMPANIES (1980-84) 103
TOP 10 PERFORMERS:
Company 1984 sales
Rank (INC. 500 rank) ($000)
1. Le Beacon Presse (35) $666,666
2. Herbalife International (1) 423,093
3. International Medical Center (40) 235,000
4. Softsel International (4) 165,802
5. American Trans Air (7) 139,456
6. TravelCenter (369) 115,294
7. Microsoft (163) 97,478
8. Sharper Image (400) 85,598
9. ABC Supply (2) 82,269
10. Drug Emporium (320) 79,658
TOP 10 PERFORMERS:
SALES PER EMPLOYEE
Company Sales per
Rank (No. of employees) employee
1. Corinthian Communications (18) $4,333,333
2. Ugly Duckling Rent-A-Car (24) 2,066,667
3. Le Beacon Presse (398) 1,675,040
4. First National Capital (12) 1,485,917
5. World Leasing (13) 1,413,308
6. All American Hero (8) 1,372,125
7. Bennett Funding Group (27) 1,244,778
8. Amplicon (28) 1,244,286
9. David Langer (7) 1,157,571
10. Herbalife International (400) 1,057,733
TOP 10 PERFORMERS
Company employees Percent
Rank (No. of employees) 1980-84 growth
1. ABC ? Supply (228) 227 22,700%
2. Softsel International (400) 398 19,900%
3. Institutional Finan. Svcs. (609) 601 7,513
4. Coal Products (135) 133 6,650
5. Micro Electronics (119) 117 5,850
6. Teleconnect (640) 628 5,233
7. Fayette Manufacturing (160) 157 5,233
8. First Software (253) 248 4,960
9. Advanced Input Devices (702) 687 4,580
10. General Microcomputer (275) 268 3,829
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